Kukudala Venkata Laxmi Narsimha Swamy V. Union Of India and another

WP/22068/2021

AI Insights

The case involved petitioners Kukudala Venkata Laxmi Narsimha Swamy and Roja Rani Kukudala, who were directors of companies that had been struck off or were inactive. They were disqualified as directors and their DINs were deactivated under Section 164(2)(a) of the Companies Act, 2013, due to non-filing of financial statements or annual returns for three consecutive years. The petitioners challenged this action, arguing it was arbitrary, illegal, and violated principles of natural justice and constitutional rights. The court examined whether the disqualification could be applied retrospectively and whether the deactivation of DINs was justified under the rules governing DINs.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 738922 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 14-09-2021
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX (CENTRAL)-I, NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITED, YASHODHARA SHROFF vs. UNION OF INDIA, GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH vs. UNION OF INDIA, BHAGAVANDAS DHANANJAYA DAS vs. UNION OF INDIA
• Laws Referred To: Companies Act, 2013, Companies Act, 1956, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: NALLA VIVEKANAND
• Keywords: Deactivation of DIN; Director disqualification; Natural Justice; Retrospective Legislation; DIN Restoration
• Section: 151 CPC; 403; 252; 248(1)(c); 164(2)(a); 16a(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAO (Special Original Jurisdiction) TUESDAY ,THE FOURTEENTH DAY OF SEPTE[/BER TWO THOUSAND AND TWENTY ONE PRESENT THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI WRIT PETITION NO: 22068 OF 2021 lA NO: 1 OF 2021 Petition under section 1 51 cPC praying that in lhe circumstances stated in the affidavit filed in support of the petition, the High court may be pleased to direct the Respondents to restore the DIN 01673488 and 01918693 of the petitioners, so as to enable the Petitioners to comply with statutory requirements for other administrative requrrements, whereas the petitioner is also director pending disposal of the Writ Petition. Counsel for the Petitioner: SRI NALLA VIVEKANAND Counsel for the Respondents: SRt NAMAVARAPU RAJESHWAR RAO, ASST, SOLICITOR GENERAL The Court made the following: ORDER Between: 1. Kukudala Venkata Laxmi Narsimha Swamy, S/o Ku kudala Muthyalu, Aged about 42 Years, Occ. Business, EWSH-211, New Santhoshnagar, Saidabad, Hyderabad-500059.T.S. 2. Roja Rani Kukudala, S/o Kukuda la Muthyalu, Aged about 42 Years, Occ. Business, EWSH-211, New Santhoshnagar, Saidabad, Hvderabad-500059 T S ...pETrroNERS AND 1. Union Of lndia, The Ministry of Corporate Affairs Represented by its Secretary'A' Wing, ShastriBhawan, Ralendra Prasad Road, New Delhi - 110 011, 2. The Registrar of Companies Telangana State, 2nd Floor, Corporate Bhawan, GSI Post,Tattianaram, Nagole, Band laguda, Hyderabad - 500 068. ...RESPONDENTS Petition under Article 226 of the Constitution of lndia praying that in the circumslances stated in the affidavit filed therewith, the High Court may be pleased to issue any appropriate writ, order or direction more particularly in the nature of Writ of Mandamus. a. declaring the action of the Respondents in disqualifying the Petitioners invoking Section 16a(2)(a) as arbitrary, illegal, contrary to the principles of natural justice, in violation of the provisions of the Companies Act, 2013 and in contravention of the rights guaranteed under Article 14 and Article 19 (1) (g) of the Constitution of lndia and consequently direct the Respondents to restore the DIN of Petitioners 01673488 and 01918693. b. That the list of directors passed by the lvlinistry of Corporate Affairs(MCA) on the website, i.e. www.mca,gov.in as arbitrary illegal,. without jurisdiction, contrary of the provisions of the Companies Act 2013 as Rule 1 1 of the Companies (Appointment of Directors) Rules, 20'14, violative of the principles of natural justice besides violating the rights guaranteed under Article 14 and Arlicle 19 (1) (g)of the Constitution of lndia and quash /set aside the same to the extent it declares /lreats the petitioner as disqualified in terms of section l6aQ)@) of the Companies Act 20'13 in the interest of justice. c. that the petitioner is not disqualified in terms of section 164(2) ( a) of the Companies Act 2013 for the reason of the alleged default of non-filing of Annual Returns and financral statements for said Strike off Companies. THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVITI ORDER: When the motter is token up for heoring, bolh the leorned counsel hod conlended ihot the issue roised in the present wril pelilion is squorely covered by the order possed by this Court in W.P.No.ll434 of 2021 ond botch, doled 05.08.2021 ond therefore, the present writ pelilion moy olso be ollowed of in terms of the soid order. ln view of the obove submission, following the order doted 05.08.2021 possed by this Court'in W.P.No.il434 of 2021 ond botch ond in terms lhereof, this Writ Pelition is ollowed. No costs. Pending miscelloneous petitions, if ony, sholl stond clcsed. i/TRUE COPY' SO/.K.ONESIM ASSISTANTAEGISTRAR l1P) SECTION OFFICER To, SM 1 The Secretarv Union Of lndia, The Ministry of Corporate Affairs 'A'Wing' Snisirietra*dn, Rajendra Prasad Road, New D-elhi - 110 011 z ir-l. neoisirar of Cdmpanies ielangana State, 2nd Froor' -C^o-rqo^r9te Bhawan' - Gil ij;;il;iiinariri Nasole, Banidtasuda,Hvderabad - 500 (168 3, One CC to Sri Nalla Vivekanand, Advoc-ate t9PUU-l ;. o;; aa io sri Namauarapu Raieshwar Rao,-Asst. Solicitor General, Advocate loPUcl 5. Two CD CoPies 6. One Spare CoPY ta fong *itfiu.opy of order dt:05/08/202X in W'P'No'11434 of 2021 and Batch) .k HIGH COURT DATED:14/09/2021 ORDER WP.No.22068 of 2021 d 2b sEPzoz! e r TA S e k l, i\" * o O1;-,g41,nr^.ri ' \":;z- ALLOWING THE WP WITHOUT COSTS 1 tION'BLE SRI JUSI'ICE ABHINAND KUMAR SIIAVILI W.P.Nos. l1434.ll94l . 12240. 13780. 14963. t4992 15r 39. rs8s6 & 1616l of202l COMMON ORDER Since, the issue involved in all the writ petitions is one and the same,they are heard together and are being disposed of by this common order. 2. The petitioners are the directors of the private companies, registered under the Companies Act, 2013 (18 of 2013) (for short'the Act'). Some of the such companies are active, and some of them have been struck off from the register of companies under Section 248(1)( c ) of the Act, for not carrying on any business operation for the specified period mentioned in the said provision, and for not making any application within the specified period, for obtaining the status of a dormant company under Section 455 of the Act. 3. The petitioners, who were directors of the struck off companies, and who are presently directors of active companies, during the relevant period in question, failed to file financial statements or annual returns for a continuous period of three years. Therefore, the 2nd respondent passed the impugned order under Section 764(2) ot the Act, disqualifying them asdirectors, and further making them ineligible to be re-appointed as directors of that company, or any other company, for a period of five years from the date on which the respective companies failed to do so. The Director Identification Numbers (DINs) of the petitioners were also 2 4. This court granted interim orders in the writ petitions directing the 2nd respondent to activate DINs of the petitioners, to enable them to functionother than in strike off connpanies. 5. Heard the learned counsel appearing for the petitioners in all the writ petitions, Sri Namavarapu Rajeswara Rao, learned Assistant Solicitor General for the respondents - Union of India. 6. Learned counsel for the petitioners, contend that before passing the impugned order, notices have not been issued, giving them opportunity, and this amounts to violation of principles of natural justice, and on this ground alone, the impugnecl orders are liable to be set aside. 7. Learned counsel submits that Section 164(2)(a) of the Act empowers the authority to disqualify a person to be a director. provided he has not filed financial statements or annual returns of the company to which he is director, for any continuous period of three financial years. Learned counsel further submits that this provision came into force with effect from 1.4.ZOL4, and prior thereto i.e., under Section 27aG)G) of the Companies Act, 1956 (1 of 1956), which is the analogous provision, there was no such requirement for the directors of the private companies. They contend that this provision under Act 18 of 2013, will have prospective operation and hence, if the directors of company fail to comply with the requirements mentioned in the said provision subsequent to the said date, the authority under the Act, is within its jurisdiction to disqualify them. But in the present cases, the 2nd respondent, taking the period deactivated. Aggrieved by the same, the present writ petitions have been filed. J prior to t.4.2014, i.e., giving the provision retrospective effect, disqualified the petitioners as directors, whichis illegal and arbitrary. B. With regard to deactivation of DINS, learned counsel for the petitioners submit that the DINs, as contemplated under Rule 2(d) of the Companies (Appointment and Qualification of Directors), Rules, 2014 (for short 'the Rules), are granted for life time to the applicants under Rule 10(6) of the said Rules, and cancellation of the DIN can be made only for the grounds mentioned in clauses (a) to (f) under Rule 11 of the Rules. and the said grounds does not provide for deactivation for having become ineligible for appointment as Directors of the company under Section 164 of the Act. Learned counsel further submits that as against the deactivation, no appealis provided under the Rules, and appeal to the Tribunal under Section 252 of the Act is provided only against the dissolution of the company under Section 248 of the Act. 9. Learned counsel further submits that 1st respondent - Government of India represented by the Ministry of Corporate Affairs, has floated ascheme dated 29.L2.20t7 viz., Condonation of Delay Scheme - 2018, wherein the directors, whose DINs have been deactivated by the 2nd respondent, allows the DINs of the Directors to be activated. However, such scheme is not applicable to the companies which are struck off under Section 2a8(5) of the Act. In case of active companies, they can make application to National Company Law Tribunal under Section 252 of the Act, seeking for restoration, and the Tribunal can order for reactivation of DIN of such directors, whose DIN are deactivated' However, under Section 252 onlythe companies, which are carrying on the business, can approach the Tribunal and the companles, which have no business, cannot I approach the Tribunal for restoration. They submit that since the penal provision is given retrospective operation, de horc the above scheme, they are entitled to invoke the jurisdiction of this court under Article 226 of the Constitution of India. 10. With the above contentions, learned counsel sought to set aside the impugned orders and to allow the writ petitions. 11. On the other hand learned Assistant Solicitor General submits that failure to file financial statements or annual returns for any continuous period of three financial years, automatically entail their d isq ua Iification under Section 16a(2)(a) of the Act and the statute does not provide for issuance of any notice. Hence, the petitioners, who have failed to comply with thestatutory requirement under Section 164 of the Act, cannot complain of violation of principles of natural justice, as it is a deeming provision. Learned counsel further submits that the petitioners have alternative remedy ofappeal under Section 252 of the Act, and hence writ petitions may not be entertained. 72. To consider the contention of the learned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 of theAct, the said provision is required to be considered, and the same is extracted as under for better appreciation: 252. Appeal to Tribunal (1) Any person aggrieved by an order of the Registrar, notifying a company as dissolved under Section 248, may file an appeal to the Tribunal within a period of three years from the date of the order of the Registrar and if the Tribunal is of the opinion that the removal of the name of the company from the register of companiesis not justified in view of the absence of any of the grounds on which the order was passed by the Registrar, it may order restoration oF the name of the company in the register of companies; Provided that before passing an order under this section, the Tribunal shall give a reasonable opportunity of making representations and of being heard to the Registrar, l the company and all the persons concerned: Provided further that if the Registrar is satisfied, that the name of the company has been struck off from the register of companies either inadvertently or on basis of incorrect inFormation furnished by the company or its directors, which requires restoration in the register of companies, he may within a period of three years From the date of passing of the order dissolving the company under Section 248, file an application before the Tribunal seeking restoration of name of such company, (2) A copy of the order passed by the Tribunal shall be filed by the companywith the Registrar within thirty days from the date of the order and on receipt of the order, the Registrar shall cause the name of the company to be restored in the reqister of companies and shall issue a fresh ce rtifi ca te o f i n corpora ti o n. (3) If a companyt or any member or creditor or worker thereof feels aggrieved by the company having its name struck off from the register of companies, the Tribunal or an application made by the company, member, creditoror workman before the expiry of twentY years from the publication in the Official Gazette of the notice under sub-section (5) of Section 248, if satisfied that the company was, at the time of its name being struck off, carrying on business or in operation or otherwise it is just that the name oF the company be restored to the register of companies, order the name of the company to be restored to the register of companies, and the Tribunal may, bY the order, give such other directions and make such provisions as deemed just for placing the company and all other persons in the same position as nearly as may be as if the name of the company has not been struck off from the register of companies. A reading of above provision goes to show that if the company is dissolved under Section 248 of the Act, any person aggrieved by the same, can file an appeal. Thus the said provision provides the forum for redressal against the dissolution and striking off the company from the register of companies. It does not deal with the disq ua lification of the directors, and deactivation of their DINs. In the present case, the petitloners are only aggrleved by their d isq ua lification as directors and deactivation of DINs, but not about striking off companies as such. Hence, Section 252 of the Act, cannot be an alternative remedy for seeking that relief, and the contention of the learned Assistant Soticitor General, in this regard, merits for rejection. 6 13. Under Section 164(2)(a) of the Act, if the Director of a company fails to file financial statements or annual returns for any continuous periodof three financial years, he shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so. The said provision under the Act 18 of 2013, came into force with effect from 07.04.2Ot4, and the petitioners are disqualified as directors under the said provision. At thi:i stage, the issue that arises for consideration is - whether the d isq ua lification envisaged under Section 164(2)(a) of the Act, which provision came into force with effect from 01.04.20L4, can be made applicable with prospective effect, or has to be given retrospective operation?In other words, the issue would be, from which financial year, the default envisaged under Section 164(2)(a) of the Act, has to be calculated, to hold the director of the company liable? In this regard, the learned counsel brought to the notice of this Court, the General Circular No.0B/14 dated 4.4.2014 issued by the Ministry of Corporation affairs, which clarifies the applicability of the relevant financial years. The relevant portion of the said circular is as under: \"A number of provislons of the Companies Act, 20]3 including those relating to maintenance of books of accouFt, preparationt adoption and filing of financial statements (and documents required to be attached thereto)t Auditors repotts and the Board of Directors report (Board's report) ha'./e been brought into force with effect from 1s' April, 2014. Provisions of Schedute Il (usefut lives to compute depreciation) and Schedule III (format of financial statements) have also been brought into force fram that date. The relevant Rules pertaining to these provisiols have also been notified, placed on the website of the Ministry and have come into force from the same date. Although the position in this behalf is quite clear, to make things absolutely clear it is hereby notified that the financial statements (and documents required to be attached thereto), auditors report and Board's repoft in respect of The Ministry has received requests for clarification wtth regard to the relevant financial years with effect from whi.h such provisions of the new Act relating to maintenance of books of account, preparation, adoption and filing of financial sfatements (and attachments thereto), auditors report and Board's report will be applicable. financial yearsthat commenced earlier than 1st April shall be governed by the relevant provisions/schedules/rules of the Companies Act, 1956 and that in respect of financial years commencing on or after 1st April, 2014, the provisions of the new Act shall apply.\" A reading of the above circular makes it clear the financial statements and the documents required to be attached thereto, auditors report and Board's report in respect of financial years that commenced earlier than OL.O4.2OL4, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after OL.O4,20L4, the provisions of the new Act shall apply. L4. At this stage it is required to be noticed that the analogous provision to Section 164(2)(a) of the Act 18 of 2013, is Section 27aQ)@) of Act 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready reference: SggEpD-2zlU) A person shall not be capable of being appointed director of acompany, if - (g) such person is already a director of a public company which, (A) has not filed the annual accounts and annual returns for any continuous three financial years commencinq on and after thefirst daY of April, 1999; or (8) Provided that such person shall not be eligible to be appointed as a director of any other public companY for a period of five years from the date on which such public company, in which he is a director, failed to file annual accounts and annual returns under sub-clause (A) or has failed to repay its deposits or interest or redeem its debentures on due date or paY dividend referred to in clause (B). A reading of the above provision under Act 1 of 1956, makes it clear that if a person capable of being appointed director of a company and such person is already a director of a public company, which has not filed annual accounts and annual returns for any continuous three financial years commencing on 8 and after the first day of April 1999, shall not be eligible to be appointed as a director of any other public company for a period of five years from thedate on which such public company, in which he is a director, failed to file annual accounts and annual returns. So the statutory requirement of filing annual accounts and annual returns, is placed on the directors of a'public company'. There is no provision under the Act 1of 1956, which places similar obligations on the directors of a 'private company'. Therefore, non- filing of annual accounts and annual returns by the directors of the private company, will not disqualify them as directors under the provisions of Act 1of 1956. 15. Under Section 16a(2) of the new legislation i.e., Act 18 of 2013, no such distinction between a 'private company' or a 'public company' is made and as per the said provision goes to show that no person who is orhas been a director of a 'company', fails to file financial statements or annual returns for any continuous period of three financial years, will not be eligible for appointment as a director of a company. As already noted above, the said provision, came into force with effect from A7.04.2014. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section 164(2)(a) of the Act 18 of 201,3, for not filing financial statements or annual returns, for period prior to 01.04.20L4, The action of the 2nd respondent runs contrary to the circular issued by the Ministry of the Corporate Affairs, and he has given the provisions of Act 18 of2013, retrospective effect, which is imperm issib le. 17. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL)-|, NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITEDL has dealt with the general principles concerning retrospectivity. The relevantportion of the judgment is thus: 27. A legislation, be it a statutory Act or a statutory Rule or a statutory Notification, may physically consists of words printed on papers. 28. However, conceptuallY it is a great deal more than an ordinary prose. There is a special peculiaritY in the mode of verbal communication by a legislation' A legislation is not just a series of statements, such as one finds in a work of fiction/non fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a leqislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of 'lnterpretation of Statutes'. Vis-;-vis ordinary prose, a legislation differs in its provenance, lay-out and features as also in the implication as to its meaning that arises by presumptions as to the intent of the maker thereof. 29. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumednot to be intended to have a retrospective operation The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keepinq in the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs bY relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips vs. Eyre [(1870) LR 6 QB 1], a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law. 30.The obvious basis of the principle against retrospectivity is the principle of'fairness', which must be the basis of every legal rule as was observed in the decision reported in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co Ltd. [{1994) 1Ac 486]. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disabilitY have to be treated as prospective unless the legislative intent is clearlY to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former leqislation or to explain a former legislation. We need not note that cornucopia of case law avaitable on the subject because aforesaid legal position clearly emerges from the various decisions and this leqal position was conceded by the counsel for the L (zots)t scct r0 parties. In any caset we shall refer to few judgments containing this dictat a little later. 31. We would also like to point out, for the sake of completeness, that wllere a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and whereto confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India & Ars. v. Indian Tobacco Association, [(2005) 7 SCC 396], the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation, The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra & Ors., [(2006) 6 ,CC 289]. It was hetd that where a law is ena(ted for the benefit oF community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are (sic not) confronted with any such situation here. 32. In such cases, retrospectivity is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attached towards prospectivity. In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors. 43. There is yet another very interesting piece of evidence that clarifies that provision beyond any pale of doubt viz., the understandlng of CADT itself regarding this provision. It is contained in CBDT Circular No.8 of 2002 dated 27.8.2002, with the subject \"Finance Act, 2002 - Explanatory Notes on provision relating to Direct Taxes-. This circular has been issued after the passing of the Finance Act, 2002t by which amendment to section 113 was n1ade. In this circular, various amendments to the Income tax Act are discussed amply demonstrating as to wllich amendments are clarificatory/retrospective in operation and which amendments are prospective. For example, Explanation to section 158-88 is stated to be clarificatory in nature. Likewise, it is mentioned that amendments in Section 145 whereby provisions of that section are made applicable to block assessments is made claificatory and would take effect retrospectively from l't day of )uly, 1995. When it comes to amendment to Section 113 of the Act, this very circular provides that the said amendment along with the amendments in Section 158-BE, would be prospective i.e., will take effect from 1.6.2002.\" tl 18. Thus, the Apex Court in the above judgment, has made it clear that unless a contrary intention appears, a legislation has to be presumed to have prospective effect. A reading of Section 164 of the Act does not show that the legislation has any intention, to make the said provision applicable to past transactions' Further, the Apex Court in the above judgment at paragraph No.43, found that the circular issued by the authority after passing of the legislation, clarifying the position with regard to applicability of the provisions, has to be construed as an important piece of evidence, as it would clarify the provision beyond any pale of doubt. In the present case, asalready noted above, the Ministry of Corporation affairs has issued thecircular No.08/2014 dated 4.4.20t4 clarifying that financial statements commencing after 01'04.2014, shall be governed by Act 18 of 2013 i.e., new Act and in respect of financial years commencing earlier to O1.04.2074, shall be governed by Act 1 of 1956. At the cost of repetition, since in the present cases, as the 2nd respondent / competent authority, has disqualified the petitioners as directors under Section 164(2)(a) of the Act 18 of 2013, by considering the period prior to 01,04.2014, the same is contrary to the circular, and also contrary to the law laid down by Apex Court in the above referred judgment. 19. If the said provision is given law laid prospective effect, the circulardated 4.4.2014 and the down by the APex as stated in the writ affidavits, the first financial year would be from O1-04-2014 to 31.03.2015 and the second and third years financial years would be for the years ending 31.03'2016 and 31.03.2017' The annual returns and financial statements are to be filed with Registrar oF Companies only after the conclusion of the annual general meeting as per Court, I2 of the company, and as per the first proviso to Section 96(1) of the Act, annual general meeting for the year ending 31.03.2017, can be held within six months from the closing of financial year i.e., by 30.09.2017. Further, the time limit for filing annual returns under Section 929) of the Act, is 60 days from annual general meeting, or the last date on which annual general meeting ought to have been held with normal fee, and within 270 days with additionai fee as per theproviso to Section 403 of the Act. Learned counsel submit that if the said dates are calculated, the last date for filing the annual returns would be 30.11.2017, and the balance sheet was to be filed on 30.10.2017 withnormal fee and with additional fee, the last date for filing annual returns is 2Z.O7.2OlB. In other words, the disqualification could get triggered only on or after 2Z.O7.2}lg, But the period considered by the 2nd respondent in the present writ petitions for clothing the petitioners with disqua lification, pertains prior to 0L.04.2074. Therefore, when the omission, which is now pointed out, was not envisaged as a ground for disqualification prior to 7.4.2014, the petitioners cannot be disqualified on the said ground. This analogy is traceable to Article 20(1) of the Constitution of India, which statesthat \"No person sha be convicted of any offence except for violation of a lawin force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in torce at the time of the commission of the offence,,. In view of ther same, the ground on which the petitioners were disqualified, cannot stand to legal scrutiny, and the same is liable to be set aside. 20. A learned Single Judge of the High Court of Karnataka in YASHODHARA SHROFF vs. UNION OF I-) INDIA? considering Section 16a(2)(a) of the Act and other provisions of the Act, and various judgments, passed an elaborate order and held that the said provision has no retrospective operation. he observations of the learned Judge, pertaining to private companies, which are relevant for the present purpose, are extractedas under: 208. In view of the aforesaid discussion, I have arrived at the fo I I ow i ng con cl us i o ns : (a) It is held that Section 16a(2)(a) of the Act is not ultra virus Article 14 of the Constitution. The said provision is not manifestly arbitrary and also does not fall within the scope of the doctrine of proportionality. Neither does the said provisionviolate Article 19(1)(9) of the Constitution as it is made in the interest of general public and a reasonable restriction on the exercise of the said right. The object and purpose of the said provision is to stipulate the consequence of a disqualification on account of the circumstances stated therein and the same is in order to achieve probity, accountability, and transparency in corporate 9overnance, (b) That Articte (sic) section 164(2) of the Act applies bv operation of law on the basisof the circumstances stated therein, the said provision does not envisage anY hearing, neither pre-disqualification nor post-disqualification and this is not in violation of the principles of natural justice, is not ultra vires Article 14 of the Constitution. (c) That Section 164(2) of the Act does not have retrospective operation and is therefore, neither unreasonable nor arbitrary, in view oF the interpretation placed on the same. (d) . (e) Insofar as the private companies are concerned, disqualification on account of the circumstances stated under Section 164(2)(a) of the Act has been brought into Force for the first time under the Act and the consequences of disqualification could not have been imposed on directors of private companies by taking into consideration any period prior to 01,04.2014 for the purpose of reckoning continuous period of three financial years under the said provision. The said conclusion is based on the principal drawn bY waY of analogy from Article 20(1) of the Constitution, as at no point of time prior to the enforcement of the Act, a disqualification based on the circumstances under Section 164(2) of the Act was ever envisaged under the 1956 Act vis-e-vis directors of private co.paniut. Such a disquatification could visit a director of only a public company under Section 27a(1)(g) of 1956 Aci and never a director of a private company' Such disqualification of the petitioners who are directors of private companies is hence quashed. (0 (g) Consequentty, where the disqualification under. qPc.tion '\" 164Q) of the Act is based on a continuous period of three iii\"riirt y\"\"rt commencing from 01'04'2014,. wheren, financial statements or annual returns have not been ttled bty a pubtic or private company, the directors of such a 2 W.P.No.529ll of 2017 and batch dated 12.06 2019 14 company stand disqualified and the consequences of the said disqualification would apply to them under the Act. 21. A learned Single of the High Court of Gujarat at Ahmedabad in GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH vs. UNION OF INDIA3 expressed similar view as that of the leaned single Judge of High Court of Karnataka (1 supra), and held that Section 164(2) of the Act of 20t3, which had come into force with effect from 1.4.2OL4 would have prospective, and not retrospective eFfect and that the defaults contemplated under Section 164(2)(a) with regard to non-flling of financial statements or annual returns for any continuous period of three financial years would bethe default to be counted from the financial year 2014-15 only and not 2013- 14. 22. A learned single Judge of the High Court of Madras in BHAGAVANDAS DHANANJAYA DAs vs. I!NIoN oF INDIAA also expressed similar view. The relevant portion is as under: 29. In fine, (a) When the New Act 2013 came into effect from 1,4,2014, the second respondent herein has *.pngly--. given retrospective effect and erroneously disqualified the petitioner - directors from 1.1.2016 itseif before the deadline commenced wrongly fixing the first financial year from 1.4,2013 to 31.3,201i. (b) By virtue of the new Section 164(2)(a) of the 201.3 _Act- using the expression ,for any 'iontiruors period of three flnancial year,, and in the light of section 2(41) defining ,'financial year,,as we ais their own General circular No,Og/14 dated 4.4,20i4, the first financial year would be from 1,4.201'4 t; 31,3.2015, the second financial year would be from 1.4.2015 to 31.3.2016 and the third financiat year would be from 1.4.2016 to 31.3.2017, whereas'the second respondent clearly admitted in paras 1S and 22 ot the counter affidavit that the default o: fitino statutory returns for the finalyears commences froi 3Special Civil Application No.22435 of20l7 and batch dated 18.12.2018 a w.P.No.25455 of 201? and barch dare d 27.0.?.2018 t) 2.013-14, 2014-15 and 2015_16 i.e, one year before the Act 2013 came into force. ini, ir' ;;\" -;,;;;, incurable. tegat infirmity that vitiale, in\" Jra:rZ tmpugned proceedings, 23. In view of the above facts and circumstances and the judgments referred to supra, as the impugned orders in present writ petitions disqualifying the petitioners as directors under Section 164(2)(a) of the Act, have been passed considering the period prior to 01.04.2014, the same cannot be sustained, and are liable to be set aside to that exte nt, 24. As far as the contention regarding issuance of prior notice before disqualifying the petitioners as directors is concerned, Section 16+(2)(a) is required to be noticed, and the same is extracted as under for ready reference: 164. Disqualification for appointment of director: (2) No person who is or has been a director of a company which- (a) has not filed financial statements or annual returns for any continuous period of three financial years; or (b)... Shall be eligible to be re-appointed as a director of that company or appointed in other companies for a period of five years from the date on which the said company fails to do so. A reading of the above provision makes it clear that it provides d isq ua lification on happening of an event i.e., if a person who is or has beena director of a company has not filed financial statements or annual returns for any continuous period of three financial years, shall be ineligible to be re- appointed as a director of that company or appointed in any other company for a period of five years from the 16 dateonwhichthesaidcompanyfailstodoso.Theprovisiondoes not provide for lssuance of any prior notice or hearing' A learned single Judge of the High Court of Karnataka in Yashodara Shroff v' Union of India (1 supra), as well as the learned single Judge of the High Court of Gujarat at Ahmedabad in Gaurang Balvantlal Shah s/o Balvantlal shah vs. union of India (2 supra), after analyzing various provisions of the Act and Rules framed thereunder, and by relying on various judgments of the Apex Court, held that Section 164(2)(a) of the Act applies by operation of law on the basis of the circumstances stated therein, the saidprovision does not envisage any hearing' neither pre-d isq ualification norpost-disqua lification and this is not in violation of the principles of natural justice and hence, is not ultra vires Article 14 of the Constitution. I concur with the said reasoning. 26. The next grievance of the petitioners is with regard to deactivationof their DINs. The contention of the learned counsel for the petitioners is that except for the grounds mentioned under Rule 11 (a) to (f) of the Rules, the DINs cannot be cancelled or deactivated, and the violation mentioned under Section 16a(2)(a) of the Act, is not one of the grounds mentioned under clauses (a) to (f) of Rule 11, and hence for the alleged violation under Section 16a(2)(a) of the Act, DIN cannot be cancelled. 25. Thus, from the above, it is clear that Section 164(2)(a) of the Act is a deeming provision and the disqualification envisaged under the said provision comes into force automatically by operation of law on default and Legislature did not provide for issuance of any prior notice, but the respondents notified d isq ua lification even before it incurred, and deactivated DINs, which is illegal arbitrary and against provisions contained in Section 164(2)(a) of the Act. 27. Rule 10 of the Rules provide for allotment of DIN and under sub rule (6) of Rule 10, it is allotted for life time. Rule 11 provides for cancellation or deactivation. Rule 11, which is relevant for the present purpose, is extracted as under for ready reference: 77. Cancellation or surrender or deactivation of DIN: The Central Government or Regional Director (Northern Region), Noida or any officer authorized by the Regional Director maY, upon being satisfied on verification of particulars or documentary proof attached with the application received from anY person, cancel ordeactivate the DIN in case - (a) the DIN is found to be duplicated in respect of the same person 'piovided the data related to both the DIN shall be merged with the va I i d ly reta i n ed n u m ber ; (b) the DIN was obtained in a wrongful manner or by fraudulent means; (c) of the death of the concerned individual; iri; the concerned individual has been declared as a person of unsound mind bY a comPetent Court; (e) if the concerned individual has been adiudicated an insolvent; Provided that before cancellation or deactivation of DIN pursuant to ctause (b),an opportunitY of being heard shall be given to the concerned individual; O on an application made in Form DIR-' bY the DIN holder to surrender his or her DIN along with declaration that he has never been appointed as director inany companY and the said DIN has never been used for fiting of any document with anY authority, the Central Government may deactivate such DIN; Provided that before deactivation of anY DIN in such case, the Ce n tra I Gove rn m e nt sha I I ve r i fy e- reco rds, Exptanation: for the purposes of clause (b) - (c) The terms \"wrongful manner\" means if the DIN is obtained on the strength of documents which are not legally valid or incomplete documents are furnished or on suppression of mate;ial information or on the basis of wrong ceftification or bY making misleading or false information or by misrepresentation; the term \"fraudulent means\" means if the DIN is obtained with an intent to deceive any other person or any authority including the Central Government. 28. Clauses (a) to (f) of Rule 11, extracted above, provides for the circumstances under which the DIN can be cancelled or deactivated. The said grounds, are different from the ground envisaged under ( ii) I ,.3 Section 164(2)(a) of the Act. Therefore, for the alleged violation under Section 164 of the Act, DINs cannot be cancelled or deactivated, except in accordance with Rule 11 of the Rules. 29. Learned Single Judge of the Gujarat High Court in the decision cited 2 supra, held as under: \"29. This takes the Court to the next question as to whether the respondents could have deactivated the DINs of the petitioner as a consequence of the impugnedlist? In this regard, it would be appropriate to refer to the relevant provisions contained in the Act and the said Rules, Section 153(3) provides that no person shall be appointed as a Director of a company, unless he has been allotted the Director ldentification Number under Section 154. Section 153 requires every individual intending to be appointed as Director of a Company to make an application for allotment of DIN to the Central Government in such form and manneras may be prescribed. Section 154 states that the Central Government shall within one month from the receipt af the application under Section 153 allot a DIN to an applicant in such ma.nner as may be prescribed. Section 155 prohibits any individual, who has already been allofted a DIN under Section 154 from applying for or obtaining or possessing another DIN. Rules 9 and 10 of the said Rules of 2014 prescribe the procedure for making application for allotment and for the allotm;ft cf DIN, and further provide that the DIN allotted by the Central Government under the said Rules would be valid for the lift,time of the applicant and shall not be allotted toany other person 30, Rule 11 provides for cancellation or surrender or deactivation of DIN. Accordingly, the Centrat Government or Regional Director or any authorized officerof Regional Di-ector may, on being satisfied on verification of particula.s of documentary praof attached with an application from any pc:rson, cancel or deactivate the DIN on any of the grounds meintioned in Clause (a) to (f) thereof. The said Rule 11 doe:; not contemplate any suo motu powers either with the Central Government or with the authorized officer or Regional Director to cancel or deactivate the DIN allotted to the Director, nor any of the clauses mentioned in the said Rules contemplates canceilation or deactivation of OIN of the Director of the ,,struck off company,, or of the Director having become jneligible under Section 164of the said Act. The reason appears to be that once an indiv.idual, who is intending to be the Director of a particular company is allotted DIN by the Central Government, such DIN woutd be valid for the liFe time of the applicant and on the basis ot such DIN he could become Director in other companies also. Hence, if oneof the companies in which he was Director, is,,struck off,,, his DIN could not be cancelled or deactivated as that would run counter to the provisions contained in the Rule 11. which specifically provides for the circumstances under which th2 DIN couldbe cancelled or deactivated. 31. In that view of the matter, the Court is of the opinion that the action of the respondents in deactivatinq the DINi of the petitioners - Directors along with the pubtication of the impJgned list of Directors of \"struck off,, companies under Sectior,148, also was not legally tenable, Of courset as per Rule 12 of the said Rules, the individual who has been allotted the DIN, in the event of any change inhis particulars stated in Form DIR -3 has to intimate such change to the Central Government within the p-rescribed time in Form DIR-6, however, if that is not done, the DIN could not be cancelted or deactivated. The cancellation or deactivation of the DIN could be resorted to by the concerned respondents only as per the provisions contained in the said Rules,\" 30. Learned Assistant Solicitor General appearing for respondents had contended that Section 403 (2) of the Act provides that \"where a company fails or commits any default to submit, file, register, or record any document, fact or information under sub- section (1) before the expiry of the period specified in the relevant section, the company and the officers of the company who are in default, shall wlthout prejudice to the liability for the payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default\" and he has further contended that as amendment has come into Section 403 with effect from 07-05-2018, the amended section has removed the prescribed 270 days' limitation within which the annual filings can be done excluding the time limit already provided under Sections 92,96 and 137 of the Act and as per Section 403 of the Act levies rupees one hundred on each day from the date of default till the date of compliance of the mandatory provisions of law' 31. This Court having considered the said submissions is of the considered view that the new amending law also contemplates levying of Rs.1OO/- per each day of default and which permits the regularizing the delay of the petitioners. Therefore, this Court is not inclined to accept the said contention of the learned Assistant Solicitor General for the respondents. 32. In view of the above facts and circumstances and the judgment referred to supra, the deactivation of the DINs of the petitioners for alleged violations under Section 164 of the Act, cannot be sustained. 20 33. For the foregoing reasons, the impugned orders in the writpetitions to the extent of disqualifying the petitioners under Section 164(2)(a) of the Act and deactivation of their DINs, are set aside, and the 2nd respondent is directed to activate the DINS of the petitioners, enabling them to function as Directors other than in strike off companies. 34. It is made clear that this order will not preclude the 2nd respondent from taking appropriate action in accordance with law for violations as envisaged under Section 76 Q) of the Act, giving the said provision prospective effect from 07.04.2014 and for necessary action against DIN in case of violations of Rule 11 of the Rules. 35. It is also made clear that if the petitioners are aggrieved by the action oF the respondents in striking off their companies under Section 248 ofthe Act, they are at liberty to avail alternative remedy under Section 252 of the Act. 36. All the writ petitions are accordingly allowed to the extent indicated above. 37. Miscellaneous petitions pending if any shall stand closed, JUSTICE ABHINAND KUMAR SHAVILI Dt.05-08-2021 kvr "